On 21 March, the Verkhovna Rada adopted government Draft Law No. 9105, which was labelled 'urgent' as it amended the law on the state budget for 2023. The main point of the document is to increase state treasury expenditures by almost 19%, or half a trillion hryvnias. Most of this amount will be spent on defence. The increased expenditures will be covered by increasing the tax pressure and attracting even more international aid.
Mind has been looking into how the state budget has been transformed and whether it is final.
How have the parameters of the state budget for 2023 changed? The main changes envisaged by the Draft Law No. 9105 are as follows:
What the additional funds will be used for? About 96% of the increased state budget expenditures will be used to strengthen Ukraine's defence capabilities. It is almost UAH 468 billion.
Given that the initially adopted version of the state budget for 2023 (the Verkhovna Rada approved the first version of the budget in November 2022) planned UAH 1.14 trillion for security and defence, this expenditure category will exceed UAH 1.6 trillion, or about 25% of the forecast nominal GDP for 2023, after taking into account the amendments.
In particular, the following defence and law enforcement agencies received the largest increases (the percentage increase in spending and the total amount of spending are indicated below):
The expenses of the administration of the State Service of Special Communications and Information Protection were increased by 7.8 times to UAH 36.4 billion. The MPs also increased funding for the National Anti-Corruption Bureau. It will receive 4.2% more, or UAH 1.3 billion. At the same time, the expenditures of the Ministry of Finance (general government spending and lending) were cut by 7.9% to UAH 367.4 billion, including the expenditures on public debt service by 15.4% to UAH 276 billion.
Main changes in the expenditure part of the state budget according to the Draft Law No. 9105
| Expenditure item | Dynamics, % | Final amount for 2023, billion UAH |
| Ministry of Defence | +43,4 | 1230 |
| National Guard | +106,2 | 97,1 |
| Ministry of Internal Affairs | +46,8 | 309 |
| National Police | +25,2 | 85,9 |
| Defence Intelligence of Ukraine | +39,8 | 16,2 |
| The Foreign Intelligence Service | +149,4 | 5,5 |
| Security Service of Ukraine | +41,9 | 31,6 |
| Department of the State Guard | +43,9 | 3,2 |
*data from amendments to the text of Draft Law No. 9105
In particular, the budget revenues from the personal income tax (PIT) will increase by 25.3% to UAH 180 billion, while the revenues from the domestic VAT (including refunds to taxpayers) will increase by 2.3% to UAH 228 billion. In terms of non-tax revenues, MPs increased the share of net profit to be transferred to the budget by 3.6 times, to UAH 26.3 billion.
Debt financing was also on the Parliament's agenda. The plan for domestic borrowing (placing military bonds) was adjusted by +299%, to UAH 362 billion. External borrowings will increase by 11.2% to UAH 1.8 trillion.
Have the revenue plans been implemented? According to Danylo Hetmantsev, Chairman of the Parliamentary Committee on Finance, Taxation and Customs Policy, Ukraine will seek funds for its growing defence needs from its international partners.
"The state budget deficit (its new size is UAH 1.72 trillion – Mind) will actually be smaller because it does not yet take into account the full amount of planned grants. It is non-refundable funding that goes to the budget revenues," Mr. Hetmantsev explained.
NBU Governor Andriy Pyshny also said at a briefing on 16 March that Ukraine would be able to receive more than the planned $38 billion in 2023. By the way, the preliminary agreement with the International Monetary Fund (IMF) on a $15.6 billion loan announced by the National Bank late on 22 March is very timely.
At the same time, given the increase in personal income tax revenues in the amended budget by almost UAH 37 billion, it can be assumed that MPs, together with the government, clearly intend to step up the fight against shadow incomes of individuals and businesses. Foremost, we are talking about salaries in 'envelopes', which the government regularly promises to 'whitewash'.
The plans to receive more than UAH 26 billion from the profits of state-owned enterprises are questionable given the problems in the economy and the damage the war has caused to all businesses, both public and private. Even in 2021, the share of profitable state-owned companies was 28%. At the same time, almost 50% of the enterprises still owned by the state are not physically operating.
As for the overall impact of increased state budget expenditures and the budget deficit on the economy, Andriy Pyshny is quite optimistic. He assures us that this was a completely predictable measure. Therefore, it will neither destabilise the hryvnia, nor accelerate inflation. And the National Bank does not intend to turn to the 'greenback emission' either.
"Back in January, in its macroeconomic forecast, the NBU pointed out that we were taking into account the risks of an increase in the budget deficit and additional costs that would be required to finance the war. Thus, in this case, it is an expected step. We have an agreed position with the Ministry of Finance and the IMF to prevent the monetization of the state budget in 2023," Mr. Pyshny assured.